Pfizer: expanding consumer health business through OTC Nexium deal.
Pfizer: expanding consumer health business through OTC Nexium deal
By Karen Coleman, Publisher, Strategy
22 August 2012
I am a Publisher at Datamonitor Healthcare, overseeing our Strategy content including companies, epidemiology, generics ...
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Recently, Pfizer and AstraZeneca announced that they have signed a deal giving Pfizer marketing rights for the OTC version of the gastroesophageal reflux disease drug Nexium. Along with the cash-generating potential, the deal also strengthens Pfizer’s consumer healthcare division, which can act synergistically with the company’s innovative pharma business, especially in the emerging markets.
Under the terms of the agreement, Pfizer will pay AstraZeneca $250m in addition to subsequent milestone and royalty payments based on product launches and sales. Pfizer will gain global rights to over-the-counter (OTC) Nexium (esomeprazole). A New Drug Application filing for OTC Nexium in the US is expected in H1 2013 and, subject to approval, launch is anticipated in early 2014 in the US, followed by other markets.
In addition to Nexium, the two companies are exploring avenues for further similar partnerships involving drugs suitable for an OTC switch, and have signed agreements giving Pfizer a right of first refusal for OTC rights for Rhinocort aqua (glucocorticosteroid budesonide pump spray) for non-infectious rhinitis.
While this deal provides AstraZeneca with a partner to execute its lifecycle management strategy for Nexium, it gives Pfizer a new avenue to pursue in its quest to plug the revenue hole generated by the patent expiry of Lipitor (atorvastatin). Given Nexium’s 2011 sales of $4.4bn and its success with the OTC version of Losec/Prilosec (omeprazole), its first-generation proton pump inhibitor, the follow-on product Nexium is expected to garner significant sales for the two partners. In addition, around one fifth of Losec/Prilosec sales in 2011 were generated in emerging markets and, assuming similar or even better success can be achieved in these territories, OTC Nexium will prove to be a strong growth driver for Pfizer’s consumer health unit.
Pfizer has traditionally been a moderately diversified pharma company, with its non-prescription pharma offering designed to protect its operating margin from the more volatile growth prospects associated with its prescription pharmaceutical business. Although segments such as consumer healthcare typically provide lower margins, they lack a competitor threat in the form of generic erosion. However, last year the company announced its decision to refocus on its innovative core, with the nutrition unit first to be divested, being sold to Nestle. The next one up is its animal health division, Zoetis, with 20% of its shares to be floated.
The consumer health unit, however, was spared the ax. Pfizer has returned to the consumer healthcare/OTC market via Wyeth’s respective business units, after having previously sold its consumer healthcare business to Johnson & Johnson in 2006. In addition, the acquisition of Ferrosan in 2011 allowed Pfizer to expand its geographic footprint within the consumer health sector in the Nordic countries, as well as the emerging markets of Russia and Ukraine. The unit recorded an 8% growth in the second quarter of 2012 over the same period of 2011, in stark contrast with its biopharmaceutical division, which posted a 10% slump over this timeframe.
While the slimmer margins offered by the consumer health/OTC market and the smaller size of this unit mean that its sales growth can only have a limited impact on Pfizer’s financial performance, its potential to act as a platform for growth in the emerging markets (the emerging markets unit posted an 8% revenue increase in H1 2012) and provide insulation from payers’ cost-cutting efforts is the likely motivation for Pfizer remaining diversified in the non-prescription drug sector.
The attraction of OTC brands in the emerging markets is clear: OTC brands often feature among the top selling pharmaceutical products in the emerging markets, as a result of the lower purchasing power of the population, underdeveloped healthcare systems, and strong brand loyalty. However, OTC brands are also an attractive proposition in the developed markets due to their ability to alleviate the burden on payers by shifting the costs to patients/consumers.
In the light of these factors, Pfizer may well be regretting the divestment of its sizable consumer health/OTC division to Johnson & Johnson back in 2006.